Thursday, 18 March 2010

EU fault lines are opening up

AEP wrote an excellent piece in today's DT which I quote from liberally. As I noted yesterday brinkmanship is now the name of the game in the Greek debt crisis. The Greek PM Papandreou told the Brussels press that he had not ruled out going to the IMF. As AEP says this would be viewed as treachery by top EU officials. The Greeks are becoming pissed off with the EU constructive ambiguity, do nothing, policy ,lots of rhetoric on European solutions but no cash or even any details. As one of Merkel's advisers, M Meister, Christian Democrat finance spokesman in the Bundestag, helpfully put it last night, "We have to think who has the instruments to push Greece to restore access to capital markets- nobody apart from the IMF." Merde, the hated Anglo Saxons.

Worse, there is a growing body of opinion in Germany, who after all will have to foot the bill, that IMF involvement would produce the cleanest solution and would be at above market rates, usually 100 over SDR, pour encourager les autres as M Sarkozy might say. This would also avoid breach of the EU's sacred no bail out clause.

Jean-Claude Juncker, Eurogroup chief is quoted by AEP as saying 'recourse to the IMF by any Eurozone state would shatter the credibility of monetary union. He then gives the real agenda away by saying, "If California had a refinancing problem the US would not go to the IMF". Exactly,the US is a state and M Juncker and the Eurocrats clearly see the EU as a state equivalent to the US. Let us hope the great British public realise this as well!

The Germans , with their super efficient manufacturing economy, are defying France and the IMF and sticking to their policy of an export led growth to get them out of their insignificant crisis. German has done this since the time of Bismark but today it will suck billions of euros out of the PIGS.There is no way of recycling these funds thanks to the EU's no bail out clause plus of course German dislike of financing the idle Greeks. As Lombard Street research puts it, "If the Germans want to run a $220bn surplus then others have to run net deficits totalling $200bn".

Euro rules are forcing the PIGS to tighten their fiscal policies by 6% to 10%. That means public sector wage cuts and redundancies, a deflationary slump like the 1930s, riots and if you remember what also happened in the 1930s the likely rise of far right Nazi parties.

Crucially the French are infuriated by the effect this German policy of a wage squeeze and consequent reduction in unit labour costs is having on the rest of Europe. This is the old Franco Prussian fault line reopening. Even the delicious French Finance minister, Christine Lagarde, is criticising Merkel publicly. The lumpen Frau is now Europe's Iron Lady just like Bismark was the Iron Chancellor in the 19th century but then she too is a Prussian.

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